House Report 105-364 Part 1

8/14/2019 House Report 105-364 Part 1

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105TH CONGRESS REPT. 105364" !HOUSE OF REPRESENTATIVES1st Session Part 1

INTERNAL REVENUE SERVICE RESTRUCTURING ANDREFORM ACT OF 1997

OCTOBER 31, 1997.Committed to the Committee of the Whole House on the Stateof the Union and ordered to be printed

Mr. ARCHER, from the Committee on Ways and Means,submitted the following

R E P O R T

[To accompany H.R. 2676]

[Including cost estimate of the Congressional Budget Office]

together with

ADDITIONAL AND DISSENTING VIEWS

The Committee on Ways and Means, to whom was referred thebill (H.R. 2676) to amend the Internal Revenue Code of 1986 to re-structure and reform the Internal Revenue Service, and for otherpurposes, having considered the same, report favorably thereonwith an amendment and recommend that the bill as amended dopass.

CONTENTS

Page

I. Summary and Background ........................................................................... 30 A. Purpose and Summary .................................................................... 30B. Background and Need for Legislation ............................................ 32C. Legislative History ........................................................................... 32

II. Explanation of the Bill .................................................................................. 33Title I. Executive Branch Government .................................................... 33

A. Creation of IRS Oversight Board (sec. 101) ................................... 33B. Appointment and Duties of IRS Commissioner (secs. 102 and

103) .................................................................................................. 38C. Structure and Funding of the Employee Plans and Exempt

Organizations Division (sec. 102) .................................................. 40D. Taxpayer Advocate (sec. 102) .......................................................... 42E. Prohibition on Executive Branch Influence Over Taxpayer Au-

dits (sec. 104) .................................................................................. 44F. IRS Personnel Flexibilities (sec. 111) ............................................. 45


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Title II. Electronic Filing .......................................................................... 50A. Electronic Filing of Tax and Information Returns (sec. 201) ....... 50B. Time for Filing Certain Information Returns With the IRS (sec.

202) .................................................................................................. 51C. Paperless Electronic Filing (sec. 203) ............................................. 52D. Return-Free Tax System (sec. 204) ................................................ 53E. Access to Account Information (sec. 205) ....................................... 54

Title III. Taxpayer Bill of Rights 3 .......................................................... 54 A. Burden of Proof (sec. 301) ............................................................... 54B. Proceedings by Taxpayers ............................................................... 57

1. Expansion of authority to award costs and certain fees (sec.311) ........................................................................................... 57

2. Civil damages for negligence in collection actions (sec. 312) . 593. Increase in size of cases permitted on small case calendar

(sec. 313) .................................................................................. 60C. Relief for Innocent Spouses and Persons With Disabilities .......... 60

1. Innocent spouse relief (sec. 321) ............................................... 602. Suspension of statute of limitations on filing claims during

periods of disability (sec. 322) ................................................ 62D. Provisions Relating to Interest ....................................................... 63

1. Elimination of interest differential on overlapping periodsof interest on income tax overpayments and underpay-ments (sec. 331) ....................................................................... 63

2. Increase in overpayment rate payable to taxpayers otherthan corporations (sec. 332) .................................................... 65

E. Protections for Taxpayers Subject to Audit or Collection ............. 651. Privilege of confidentiality extended to taxpayers dealings

with non-attorneys authorized to practice before the IRS(sec. 341) .................................................................................. 65

2. Expansion of authority to issue taxpayer assistance orders(sec. 342) .................................................................................. 67

3. Limitation on financial status audits (sec. 343) ...................... 674. Limitation on authority to require production of computer

source code (sec. 344) .............................................................. 685. Procedures relating to extensions of statute of limitations

by agreement (sec. 345) .......................................................... 696. Offers-in-compromise (sec. 346) ................................................ 707. Notice of deficiency to specify deadlines for filing Tax Court

petition (sec. 347) .................................................................... 718. Refund or credit of overpayments before final determination

(sec. 348) .................................................................................. 729. Threat of audit prohibited to coerce tip report alternative

committment agreements (sec. 349) ...................................... 73F. Disclosures to Taxpayers ................................................................. 73

1. Explanation of joint and several liability (sec. 351) ............... 732. Explanation of taxpayers rights in interviews with the IRS

(sec. 352) .................................................................................. 743. Disclosure of criteria for examination selection (sec. 353) ..... 744. Explanation of appeals and collection process (sec. 354) ....... 75

G. Low-Income Taxpayer Clinics (sec. 361) ........................................ 75H. Other Taxpayer Rights Provisions ................................................. 76

1. Actions for refund with respect to certain estates whichhave elected the installment method of payment (sec. 371) 76

2. Cataloging complaints (sec. 372) .............................................. 773. Archive of records of the IRS (sec. 373) ................................... 784. Payment of taxes (sec. 374) ...................................................... 805. Clarification of authority of Secretary relating to the mak-

ing of elections (sec. 375) ........................................................ 816. Limitation on penalty on individuals failure to pay for

months during period of installment agreement (sec. 376) . 81I. Studies ................................................................................................ 82

1. Study of penalty administration (sec. 381) .............................. 822. Study of confidentiality of tax return information (sec. 382) . 82

Title IV. Congressional Accountability for the IRS ................................ 83 A. Review of Requests for GAO Investigations of the IRS (sec.

401) .................................................................................................. 83


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B. Joint Congressional Hearings and Coordinated Oversight Re-ports (secs. 401 and 402) ................................................................ 84

C. Budget Matters ................................................................................ 851. Funding for century date change (sec. 411) ............................ 852. Financial management advisory group (sec. 412) ................... 85

D. Tax Law Complexity Analysis (sec. 422) ........................................ 86Title V. Revenue Offset: Employer Deduction for Vacation Pay (sec.

501) ...................................................................................................... 87III. Votes of the Committee ................................................................................. 91IV. Budget Effects of the Bill .............................................................................. 92

A. Committee Estimates of Budgetary Effects ................................... 92B. Budget Authority and Tax Expenditures ....................................... 96C. Cost Estimate Prepared by the Congressional Budget Office ...... 96

V. Other Matters to Be Discussed Under the Rules of the House ................. 102A. Committee Oversight Findings and Recommendations ................ 102B. Summary of Findings and Recommendations of the Committee

on Government Reform and Oversight ......................................... 102C. Constitutional Authority Statement ............................................... 103D. Information Relating to Unfunded Mandates ............................... 103E. Applicability of House Rule XXI5(c) ............................................... 103

VI. Changes in Existing Law Made by the Bill, as Reported ........................... 103VII. Correspondence From Other Committees .................................................... 148

A. Correspondence from Committee on Government Reform andOversight ......................................................................................... 148

B. Correspondence from Committee on Rules .................................... 149VIII. Additional Views ............................................................................................ 150

IX. Dissenting Views ........................................................................................... 161

The amendment is as follows:Strike out all after the enacting clause and insert in lieu thereof

the following:SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

(a) SHORT TITLE.This Act may be cited as the Internal Revenue Service Re-structuring and Reform Act of 1997.

(b) AMENDMENT OF 1986 CODE.Except as otherwise expressly provided, when-ever in this Act an amendment or repeal is expressed in terms of an amendmentto, or repeal of, a section or other provision, the reference shall be considered to be

made to a section or other provision of the Internal Revenue Code of 1986.(c) TABLE OF CONTENTS.

Sec. 1. Short title; amendment of 1986 Code; table of contents.

TITLE IEXECUTIVE BRANCH GOVERNANCE AND SENIOR MANAGEMENT OF THE INTERNALREVENUE SERVICE

Subtitle AExecutive Branch Governance and Senior Management

Sec. 101. Internal Revenue Service Oversight Board.Sec. 102. Commissioner of Internal Revenue; other officials.Sec. 103. Other personnel.Sec. 104. Prohibition on executive branch influence over taxpayer audits and other investigations.

Subtitle BPersonnel Flexibilities

Sec. 111. Personnel flexibilities.

TITLE IIELECTRONIC FILING

Sec. 201. Electronic filing of tax and information returns.Sec. 202. Due date for certain information returns filed electronically.Sec. 203. Paperless electronic filing.Sec. 204. Return-free tax system.

Sec. 205. Access to account information.TITLE IIITAXPAYER PROTECTION AND RIGHTS

Sec. 300. Short title.

Subtitle ABurden of Proof

Sec. 301. Burden of proof.

Subtitle BProceedings by Taxpayers

Sec. 311. Expansion of authority to award costs and certain fees.Sec. 312. Civil damages for negligence in collection actions.Sec. 313. Increase in size of cases permitted on small case calendar.


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Subtitle CRelief for Innocent Spouses and for Taxpayers Unable To Manage Their Financial Affairs Due toDisabilities

Sec. 321. Spouse relieved in whole or in part of liability in certain cases.Sec. 322. Suspension of statute of limitations on filing refund claims during periods of disability.

Subtitle DProvisions Relating to Interest

Sec. 331. Elimination of interest rate differential on overlapping periods of interest on income tax overpaymentsand underpayments.

Sec. 332. Increase in overpayment rate payable to taxpayers other than corporations.

Subtitle EProtections for Taxpayers Subject to Audit or Collection Activities

Sec. 341. Privilege of confidentiality extended to taxpayers dealings with non-attorneys authorized to practicebefore Internal Revenue Service.

Sec. 342. Expansion of authority to issue taxpayer assistance orders.Sec. 343. Limitation on financial status audit techniques.Sec. 344. Limitation on authority to require production of computer source code.Sec. 345. Procedures relating to extensions of statute of limitations by agreement.Sec. 346. Offers-in-compromise.Sec. 347. Notice of deficiency to specify deadlines for filing Tax Court petition.Sec. 348. Refund or credit of overpayments before final determination.Sec. 349. Threat of audit prohibited to coerce Tip Reporting Alternative Commitment Agreements.

Subtitle FDisclosures to Taxpayers

Sec. 351. Explanation of joint and several liability.Sec. 352. Explanation of taxpayers rights in interviews with the Internal Revenue Service.Sec. 353. Disclosure of criteria for examination selection.Sec. 354. Explanations of appeals and collection process.

Subtitle GLow Income Taxpayer Clinics

Sec. 361. Low income taxpayer clinics.

Subtitle HOther Matters

Sec. 371. Actions for refund with respect to certain estates which have elected the installment method of pay-ment.

Sec. 372. Cataloging complaints.Sec. 373. Archive of records of Internal Revenue Service.Sec. 374. Payment of taxes.Sec. 375. Clarification of authority of Secretary relating to the making of elections.Sec. 376. Limitation on penalty on individuals failure to pay for months during period of installment agree-

ment.

Subtitle IStudies

Sec. 381. Penalty administration.Sec. 382. Confidentiality of tax return information.

TITLE IVCONGRESSIONAL ACCOUNTABILITY FOR THE INTERNAL REVENUE SERVICE

Subtitle AOversight

Sec. 401. Expansion of duties of the Joint Committee on Taxation.Sec. 402. Coordinated oversight reports.

Subtitle BBudget

Sec. 411. Funding for century date change.Sec. 412. Financial Management Advisory Group.

Subtitle CTax Law Complexity

Sec. 421. Role of the Internal Revenue Service.Sec. 422. Tax complexity analysis.

TITLE VCLARIFICATION OF DEDUCTION FOR DEFERRED COMPENSATION

Sec. 501. Clarification of deduction for deferred compensation.

TITLE IEXECUTIVE BRANCH GOVERNANCE AND SENIOR MANAGEMENT OF THE INTER-NAL REVENUE SERVICE

Subtitle AExecutive Branch Governance andSenior Management

SEC. 101. INTERNAL REVENUE SERVICE OVERSIGHT BOARD.

(a) IN GENERAL.Section 7802 (relating to the Commissioner of Internal Revenue)is amended to read as follows:


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SEC. 7802. INTERNAL REVENUE SERVICE OVERSIGHT BOARD.

(a) ESTABLISHMENT.There is established within the Department of the Treas-ury the Internal Revenue Service Oversight Board (hereafter in this subchapter re-ferred to as the Oversight Board).

(b) MEMBERSHIP.(1) COMPOSITION.The Oversight Board shall be composed of 11 members,

as follows:(A) 8 members shall be individuals who are not Federal officers or em-

ployees and who are appointed by the President, by and with the adviceand consent of the Senate.

(B) 1 member shall be the Secretary of the Treasury or, if the Secretaryso designates, the Deputy Secretary of the Treasury.

(C) 1 member shall be the Commissioner of Internal Revenue.(D) 1 member shall be an individual who is a representative of an orga-

nization that represents a substantial number of Internal Revenue Serviceemployees and who is appointed by the President, by and with the adviceand consent of the Senate.

(2) QUALIFICATIONS AND TERMS.(A) QUALIFICATIONS.Members of the Oversight Board described in

paragraph (1) (A) shall be appointed solely on the basis of their professionalexperience and expertise in 1 or more of the following areas:

(i) Management of large service organizations.(ii) Customer service.(iii) Federal tax laws, including tax administration and compliance.(iv) Information technology.(v) Organization development.(vi) The needs and concerns of taxpayers.

In the aggregate, the members of the Oversight Board described in para-graph (1) (A) should collectively bring to bear expertise in all of the areasdescribed in the preceding sentence.

(B) TERMS.Each member who is described in paragraph (1) (A) or (D)shall be appointed for a term of 5 years, except that of the members firstappointed under paragraph (1) (A)

(i) 1 member shall be appointed for a term of 1 year,(ii) 1 member shall be appointed for a term of 2 years,(iii) 2 members shall be appointed for a term of 3 years, and(iv) 2 members shall be appointed for a term of 4 years.

Such terms shall begin on the date of appointment.

(C) REAPPOINTMENT.An individual who is described in paragraph (1)(A) may be appointed to no more than two 5-year terms on the OversightBoard.

(D) VACANCY.Any vacancy on the Oversight Board shall be filled in thesame manner as the original appointment. Any member appointed to fill a

vacancy occurring before the expiration of the term for which the memberspredecessor was appointed shall be appointed for the remainder of thatterm.

(E) SPECIAL GOVERNMENT EMPLOYEES.During the entire period that anindividual appointed under paragraph (1) (A) is a member of the OversightBoard, such individual shall be treated as

(i) serving as a special government employee (as defined in section202 of title 18, United States Code) and as described in section207(c)(2) of such title 18, and

(ii) serving as an officer or employee referred to in section 101(f) ofthe Ethics in Government Act of 1978 for purposes of title I of such Act.

(3) QUORUM.6 members of the Oversight Board shall constitute a quorum. A majority of members present and voting shall be required for the OversightBoard to take action.

(4) REMOVAL.(A) IN GENERAL.Any member of the Oversight Board may be removedat the will of the President.

(B) SECRETARY AND COMMISSIONER.An individual described in subpara-graph (B) or (C) of paragraph (1) shall be removed upon termination of em-ployment.

(C) REPRESENTATIVE OF INTERNAL REVENUE SERVICE EMPLOYEES.Themember described in paragraph (1)(D) shall be removed upon terminationof employment, membership, or other affiliation with the organization de-scribed in such paragraph.

(5) CLAIMS.


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(A) IN GENERAL.Members of the Oversight Board who are described inparagraph (1) (A) or (D) shall have no personal liability under Federal lawwith respect to any claim arising out of or resulting from an act or omissionby such member within the scope of service as a member. The precedingsentence shall not be construed to limit personal liability for criminal actsor omissions, willful or malicious conduct, acts or omissions for private gain,or any other act or omission outside the scope of the service of such memberon the Oversight Board.

(B) EFFECT ON OTHER LAW.This paragraph shall not be construed(i) to affect any other immunities and protections that may be avail-

able to such member under applicable law with respect to such trans-actions,

(ii) to affect any other right or remedy against the United Statesunder applicable law, or

(iii) to limit or alter in any way the immunities that are availableunder applicable law for Federal officers and employees.

(c) GENERAL RESPONSIBILITIES.(1) IN GENERAL.The Oversight Board shall oversee the Internal Revenue

Service in its administration, management, conduct, direction, and supervisionof the execution and application of the internal revenue laws or related statutesand tax conventions to which the United States is a party.

(2) EXCEPTIONS.The Oversight Board shall have no responsibilities or au-thority with respect to

(A) the development and formulation of Federal tax policy relating to ex-isting or proposed internal revenue laws, related statutes, and tax conven-tions,

(B) law enforcement activities of the Internal Revenue Service, includingcompliance activities such as criminal investigations, examinations, and col-lection activities, or

(C) specific procurement activities of the Internal Revenue Service.(3) RESTRICTION ON DISCLOSURE OF RETURN INFORMATION TO OVERSIGHT

BOARD MEMBERS.No return, return information, or taxpayer return informa-tion (as defined in section 6103(b)) may be disclosed to any member of the Over-sight Board described in subsection (b)(1) (A) or (D). Any request for informa-tion not permitted to be disclosed under the preceding sentence, and any contactrelating to a specific taxpayer, made by a member of the Oversight Board sodescribed to an officer or employee of the Internal Revenue Service shall be re-

ported by such officer or employee to the Secretary and the Joint Committeeon Taxation.(d) SPECIFIC RESPONSIBILITIES.The Oversight Board shall have the following

specific responsibilities:(1) STRATEGIC PLANS.To review and approve strategic plans of the Internal

Revenue Service, including the establishment of(A) mission and objectives, and standards of performance relative to ei-

ther, and(B) annual and long-range strategic plans.

(2) OPERATIONAL PLANS.To review the operational functions of the InternalRevenue Service, including

(A) plans for modernization of the tax system,(B) plans for outsourcing or managed competition, and(C) plans for training and education.

(3) MANAGEMENT.To(A) recommend to the President candidates for appointment as the Com-

missioner of Internal Revenue and recommend to the President the removalof the Commissioner,

(B) review the Commissioners selection, evaluation, and compensation of

senior managers, and(C) review and approve the Commissioners plans for any major reorga-nization of the Internal Revenue Service.

(4) BUDGET.To(A) review and approve the budget request of the Internal Revenue Serv-

ice prepared by the Commissioner,(B) submit such budget request to the Secretary of the Treasury, and(C) ensure that the budget request supports the annual and long-range

strategic plans.The Secretary shall submit the budget request referred to in paragraph (4)(B) forany fiscal year to the President who shall submit such request, without revision, to


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Congress together with the Presidents annual budget request for the Internal Reve-nue Service for such fiscal year.

(e) BOARD PERSONNEL MATTERS.(1) COMPENSATION OF MEMBERS.

(A) IN GENERAL.Each member of the Oversight Board who is describedin subsection (b)(1)(A) shall be compensated at a rate of $30,000 per year.

All other members of the Oversight Board shall serve without compensationfor such service.

(B) CHAIRPERSON.In lieu of the amount specified in subparagraph (A),the Chairperson of the Oversight Board shall be compensated at a rate of$50,000.

(2) TRAVEL EXPENSES.The members of the Oversight Board shall be al-lowed travel expenses, including per diem in lieu of subsistence, at rates author-ized for employees of agencies under subchapter I of chapter 57 of title 5, Unit-ed States Code, while away from their homes or regular places of business forpurposes of attending meetings of the Oversight Board.

(3) STAFF.At the request of the Chairperson of the Oversight Board, theCommissioner shall detail to the Oversight Board such personnel as may benecessary to enable the Oversight Board to perform its duties. Such detail shall

be without interruption or loss of civil service status or privilege.(4) PROCUREMENT OF TEMPORARY AND INTERMITTENT SERVICES.The Chair-

person of the Oversight Board may procure temporary and intermittent servicesunder section 3109(b) of title 5, United States Code.

(f) ADMINISTRATIVE MATTERS.(1) CHAIR.The members of the Oversight Board shall elect for a 2-year

term a chairperson from among the members appointed under subsection(b)(1)(A).

(2) COMMITTEES.The Oversight Board may establish such committees asthe Oversight Board determines appropriate.

(3) MEETINGS.The Oversight Board shall meet at least once each monthand at such other times as the Oversight Board determines appropriate.

(4) REPORTS.The Oversight Board shall each year report to the Presidentand the Congress with respect to the conduct of its responsibilities under thistitle..

(b) CONFORMINGAMENDMENTS.(1) Section 4946(c) (relating to definitions and special rules for chapter 42) is

amended(A) by striking or at the end of paragraph (5),

(B) by striking the period at the end of paragraph (6) and inserting , or,and(C) by adding at the end the following new paragraph:

(7) a member of the Internal Revenue Service Oversight Board..(2) The table of sections for subchapter A of chapter 80 is amended by strik-

ing the item relating to section 7802 and inserting the following new item:Sec. 7802. Internal Revenue Service Oversight Board.

(c) EFFECTIVE DATE.(1) IN GENERAL.The amendments made by this section shall take effect on

the date of the enactment of this Act.(2) NOMINATIONS TO INTERNAL REVENUE SERVICE OVERSIGHT BOARD.The

President shall submit nominations under section 7802 of the Internal RevenueCode of 1986, as added by this section, to the Senate not later than 6 monthsafter the date of the enactment of this Act.

SEC. 102. COMMISSIONER OF INTERNAL REVENUE; OTHER OFFICIALS.

(a) IN GENERAL.Section 7803 (relating to other personnel) is amended to readas follows:

SEC. 7803. COMMISSIONER OF INTERNAL REVENUE; OTHER OFFICIALS.

(a) COMMISSIONER OF INTERNAL REVENUE.(1) APPOINTMENT.

(A) IN GENERAL.There shall be in the Department of the Treasury aCommissioner of Internal Revenue who shall be appointed by the President,by and with the advice and consent of the Senate, to a 5-year term. Theappointment shall be made without regard to political affiliation or activity.

(B) VACANCY.Any individual appointed to fill a vacancy in the positionof Commissioner occurring before the expiration of the term for which suchindividuals predecessor was appointed shall be appointed only for the re-mainder of that term.


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(C) REMOVAL.The Commissioner may be removed at the will of thePresident.

(2) DUTIES.The Commissioner shall have such duties and powers as theSecretary may prescribe, including the power to

(A) administer, manage, conduct, direct, and supervise the execution andapplication of the internal revenue laws or related statutes and tax conven-tions to which the United States is a party; and

(B) recommend to the President a candidate for appointment as ChiefCounsel for the Internal Revenue Service when a vacancy occurs, and rec-ommend to the President the removal of such Chief Counsel.

If the Secretary determines not to delegate a power specified in subparagraph(A) or (B), such determination may not take effect until 30 days after the Sec-retary notifies the Committees on Ways and Means, Government Reform andOversight, and Appropriations of the House of Representatives, the Committeeson Finance, Government Operations, and Appropriations of the Senate, and theJoint Committee on Taxation.

(3) CONSULTATION WITH BOARD.The Commissioner shall consult with theOversight Board on all matters set forth in paragraphs (2) and (3) (other thanparagraph (3)(A)) of section 7802(d).

(b) ASSISTANT COMMISSIONER FOR EMPLOYEE PLANS AND EXEMPT ORGANIZA-TIONS.There is established within the Internal Revenue Service an office to beknown as the Office of Employee Plans and Exempt Organizations to be under thesupervision and direction of an Assistant Commissioner of Internal Revenue. Ashead of the Office, the Assistant Commissioner shall be responsible for carrying outsuch functions as the Secretary may prescribe with respect to organizations exemptfrom tax under section 501(a) and with respect to plans to which part I of sub-chapter D of chapter 1 applies (and with respect to organizations designed to be ex-empt under such section and plans designed to be plans to which such part applies)and other nonqualified deferred compensation arrangements. The Assistant Com-missioner shall report annually to the Commissioner with respect to the AssistantCommissioners responsibilities under this section.

(c) OFFICE OF TAXPAYERADVOCATE.(1) IN GENERAL.

(A) ESTABLISHMENT.There is established in the Internal Revenue Serv-ice an office to be known as the Office of the Taxpayer Advocate. Such of-fice shall be under the supervision and direction of an official to be knownas the Taxpayer Advocate who shall be appointed with the approval of theOversight Board by the Commissioner of Internal Revenue and shall report

directly to the Commissioner. The Taxpayer Advocate shall be entitled tocompensation at the same rate as the highest level official reporting di-rectly to the Commissioner of Internal Revenue.

(B) RESTRICTION ON SUBSEQUENT EMPLOYMENT.An individual who isan officer or employee of the Internal Revenue Service may be appointedas Taxpayer Advocate only if such individual agrees not to accept any em-ployment with the Internal Revenue Service for at least 5 years after ceas-ing to be the Taxpayer Advocate.

(2) FUNCTIONS OF OFFICE.(A) IN GENERAL.It shall be the function of the Office of Taxpayer Advo-

cate to(i) assist taxpayers in resolving problems with the Internal Revenue

Service,(ii) identify areas in which taxpayers have problems in dealings with

the Internal Revenue Service,(iii) to the extent possible, propose changes in the administrative

practices of the Internal Revenue Service to mitigate problems identi-fied under clause (ii), and

(iv) identify potential legislative changes which may be appropriate

to mitigate such problems.(B) ANNUAL REPORTS.(i) OBJECTIVES.Not later than June 30 of each calendar year, the

Taxpayer Advocate shall report to the Committee on Ways and Meansof the House of Representatives and the Committee on Finance of theSenate on the objectives of the Taxpayer Advocate for the fiscal yearbeginning in such calendar year. Any such report shall contain full andsubstantive analysis, in addition to statistical information.

(ii) ACTIVITIES.Not later than December 31 of each calendar year,the Taxpayer Advocate shall report to the Committee on Ways andMeans of the House of Representatives and the Committee on Finance


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of the Senate on the activities of the Taxpayer Advocate during the fis-cal year ending during such calendar year. Any such report shall con-tain full and substantive analysis, in addition to statistical information,and shall

(I) identify the initiatives the Taxpayer Advocate has taken onimproving taxpayer services and Internal Revenue Service respon-siveness,

(II) contain recommendations received from individuals with theauthority to issue Taxpayer Assistance Orders under section 7811,

(III) contain a summary of at least 20 of the most serious prob-lems encountered by taxpayers, including a description of the na-ture of such problems,

(IV) contain an inventory of the items described in subclauses(I), (II), and (III) for which action has been taken and the resultof such action,

(V) contain an inventory of the items described in subclauses (I),(II), and (III) for which action remains to be completed and the pe-riod during which each item has remained on such inventory,

(VI) contain an inventory of the items described in subclauses(I), (II), and (III) for which no action has been taken, the periodduring which each item has remained on such inventory, the rea-sons for the inaction, and identify any Internal Revenue Service of-ficial who is responsible for such inaction,

(VII) identify any Taxpayer Assistance Order which was nothonored by the Internal Revenue Service in a timely manner, asspecified under section 7811(b),

(VIII) contain recommendations for such administrative and leg-islative action as may be appropriate to resolve problems encoun-tered by taxpayers,

(IX) identify areas of the tax law that impose significant compli-ance burdens on taxpayers or the Internal Revenue Service, includ-ing specific recommendations for remedying these problems,

(X) in conjunction with the National Director of Appeals, iden-tify the 10 most litigated issues for each category of taxpayers, in-cluding recommendations for mitigating such disputes, and

(XI) include such other information as the Taxpayer Advocatemay deem advisable.

(iii) REPORT TO BE SUBMITTED DIRECTLY.Each report requiredunder this subparagraph shall be provided directly to the committeesdescribed in clauses (i) and (ii) without any prior review or commentfrom the Oversight Board, the Secretary of the Treasury, any other offi-cer or employee of the Department of the Treasury, or the Office ofManagement and Budget.

(C) OTHER RESPONSIBILITIES.The Taxpayer Advocate shall(i) monitor the coverage and geographic allocation of problem resolu-

tion officers, and(ii) develop guidance to be distributed to all Internal Revenue Serv-

ice officers and employees outlining the criteria for referral of taxpayerinquiries to problem resolution officers.

(3) RESPONSIBILITIES OF COMMISSIONER.The Commissioner shall establishprocedures requiring a formal response to all recommendations submitted to theCommissioner by the Taxpayer Advocate within 3 months after submission tothe Commissioner..

(b) CONFORMINGAMENDMENTS.(1) The table of sections for subchapter A of chapter 80 is amended by strik-

ing the item relating to section 7803 and inserting the following new item:

Sec. 7803. Commissioner of Internal Revenue; other officials.

(2) Subsection (b) of section 5109 of title 5, United States Code, is amendedby striking 7802(b) and inserting 7803(b).

(c) EFFECTIVE DATE.(1) IN GENERAL.The amendments made by this section shall take effect on

the date of the enactment of this Act.(2) CURRENT OFFICERS.

(A) In the case of an individual serving as Commissioner of Internal Rev-enue on the date of the enactment of this Act who was appointed to suchposition before such date, the 5-year term required by section 7803(a)(1) of


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the Internal Revenue Code of 1986, as added by this section, shall beginas of the date of such appointment.

(B) Section 7803(c)(1)(B) of such Code, as added by this section, shall notapply to the individual serving as Taxpayer Advocate on the date of the en-actment of this Act.

SEC. 103. OTHER PERSONNEL.

(a) IN GENERAL.Section 7804 (relating to the effect of reorganization plans) isamended to read as follows:

SEC. 7804. OTHER PERSONNEL.

(a) APPOINTMENT AND SUPERVISION.Unless otherwise prescribed by the Sec-retary, the Commissioner of Internal Revenue is authorized to employ such numberof persons as the Commissioner deems proper for the administration and enforce-ment of the internal revenue laws, and the Commissioner shall issue all necessarydirections, instructions, orders, and rules applicable to such persons.

(b) POSTS OF DUTY OF EMPLOYEES IN FIELD SERVICE OR TRAVELING.Unless oth-erwise prescribed by the Secretary

(1) DESIGNATION OF POST OF DUTY.The Commissioner shall determine anddesignate the posts of duty of all such persons engaged in field work or travel-ing on official business outside of the District of Columbia.

(2) DETAIL OF PERSONNEL FROM FIELD SERVICE.The Commissioner mayorder any such person engaged in field work to duty in the District of Columbia,for such periods as the Commissioner may prescribe, and to any designated postof duty outside the District of Columbia upon the completion of such duty.

(c) DELINQUENT INTERNAL REVENUE OFFICERS AND EMPLOYEES.If any officer oremployee of the Treasury Department acting in connection with the internal reve-nue laws fails to account for and pay over any amount of money or property col-lected or received by him in connection with the internal revenue laws, the Sec-retary shall issue notice and demand to such officer or employee for payment of theamount which he failed to account for and pay over, and, upon failure to pay theamount demanded within the time specified in such notice, the amount so de-manded shall be deemed imposed upon such officer or employee and assessed uponthe date of such notice and demand, and the provisions of chapter 64 and all otherprovisions of law relating to the collection of assessed taxes shall be applicable inrespect of such amount..

(b) CONFORMINGAMENDMENTS.(1) Subsection (b) of section 6344 is amended by striking section 7803(d) and

inserting section 7804(c).

(2) The table of sections for subchapter A of chapter 80 is amended by strik-ing the item relating to section 7804 and inserting the following new item:

Sec. 7804. Other personnel.

(c) EFFECTIVE DATE.The amendments made by this section shall take effect onthe date of the enactment of this Act.

SEC. 104. PROHIBITION ON EXECUTIVE BRANCH INFLUENCE OVER TAXPAYER AUDITS ANDOTHER INVESTIGATIONS.

(a) IN GENERAL.Part I of subchapter A of chapter 75 (relating to crimes, otheroffenses, and forfeitures) is amended by adding after section 7216 the following newsection:

SEC. 7217. PROHIBITION ON EXECUTIVE BRANCH INFLUENCE OVER TAXPAYER AUDITS ANDOTHER INVESTIGATIONS.

(a) PROHIBITION.It shall be unlawful for any applicable person to request anyofficer or employee of the Internal Revenue Service to conduct or terminate an auditor other investigation of any particular taxpayer with respect to the tax liability ofsuch taxpayer.

(b) REPORTING REQUIREMENT.Any officer or employee of the Internal Revenue

Service receiving any request prohibited by subsection (a) shall report the receiptof such request to the Chief Inspector of the Internal Revenue Service.(c) EXCEPTIONS.Subsection (a) shall not apply to

(1) any request made to an applicable person by the taxpayer or a represent-ative of the taxpayer and forwarded by such applicable person to the InternalRevenue Service,

(2) any request by an applicable person for disclosure of return or return in-formation under section 6103 if such request is made in accordance with therequirements of such section, or

(3) any request by the Secretary of the Treasury as a consequence of the im-plementation of a change in tax policy.


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(d) PENALTY.Any person who willfully violates subsection (a) or fails to reportunder subsection (b) shall be punished upon conviction by a fine in any amount notexceeding $5,000, or imprisonment of not more than 5 years, or both, together withthe costs of prosecution.

(e) APPLICABLE PERSON.For purposes of this section, the term applicable per-son means

(1) the President, the Vice President, any employee of the executive office ofthe President, and any employee of the executive office of the Vice President,and

(2) any individual (other than the Attorney General of the United States)serving in a position specified in section 5312 of title 5, United States Code.

(b) CLERICAL AMENDMENT.The table of sections for part I of subchapter A ofchapter 75 is amended by adding after the item relating to section 7216 the follow-ing new item:

Sec. 7217. Prohibition on executive branch influence over taxpayer audits and other inves-tigations.

(c) EFFECTIVE DATE.The amendments made by this section shall apply to re-quests made after the date of the enactment of this Act.

Subtitle BPersonnel Flexibilities

SEC. 111. PERSONNEL FLEXIBILITIES.

(a) IN GENERAL.Part III of title 5, United States Code, is amended by addingat the end the following new subpart:

Subpart IMiscellaneous

CHAPTER 93PERSONNEL FLEXIBILITIES RELATING TO THEINTERNAL REVENUE SERVICE

Sec.9301. General requirements.9302. Flexibilities relating to performance management.9303. Staffing flexibilities.9304. Flexibilities relating to demonstration projects.

9301. General requirements

(a) CONFORMANCE WITH MERIT SYSTEM PRINCIPLES, ETC.Any flexibilities underthis chapter shall be exercised in a manner consistent with(1) chapter 23, relating to merit system principles and prohibited personnel

practices; and(2) provisions of this title (outside of this subpart) relating to preference eli-

gibles.(b) REQUIREMENT RELATING TO UNITS REPRESENTED BY LABOR ORGANIZATIONS.

(1) WRITTEN AGREEMENT REQUIRED.Employees within a unit with respectto which a labor organization is accorded exclusive recognition under chapter71 shall not be subject to the exercise of any flexibility under section 9302,9303, or 9304, unless there is a written agreement between the Internal Reve-nue Service and the organization permitting such exercise.

(2) DEFINITION OF A WRITTEN AGREEMENT.In order to satisfy paragraph (1),a written agreement

(A) need not be a collective bargaining agreement within the meaningof section 7103(8); and

(B) may not be an agreement imposed by the Federal Service ImpassesPanel under section 7119.

9302. Flexibilities relating to performance management(a) IN GENERAL.The Commissioner of Internal Revenue shall, within a year

after the date of the enactment of this chapter, establish a performance manage-ment system which

(1) subject to section 9301(b), shall cover all employees of the Internal Reve-nue Service other than

(A) the members of the Internal Revenue Service Oversight Board;(B) the Commissioner of Internal Revenue; and(C) the Chief Counsel for the Internal Revenue Service;

(2) shall maintain individual accountability by(A) establishing standards of performance which


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(i) shall permit the accurate evaluation of each employees perform-ance on the basis of the individual and organizational performance re-quirements applicable with respect to the evaluation period involved,taking into account individual contributions toward the attainment ofany goals or objectives under paragraph (3);

(ii) shall be communicated to an employee before the start of any pe-riod with respect to which the performance of such employee is to beevaluated using such standards; and

(iii) shall include at least 2 standards of performance, the lowest ofwhich shall denote the retention standard and shall be equivalent tofully successful performance;

(B) providing for periodic performance evaluations to determine whetheremployees are meeting all applicable retention standards; and

(C) using the results of such employees performance evaluation as abasis for adjustments in pay and other appropriate personnel actions; and

(3) shall provide for (A) establishing goals or objectives for individual, group,or organizational performance (or any combination thereof), consistent with In-ternal Revenue Service performance planning procedures, including those estab-lished under the Government Performance and Results Act of 1993, the Infor-

mation Technology Management Reform Act of 1996, Revenue Procedure 6422(as in effect on July 30, 1997), and taxpayer service surveys, (B) communicatingsuch goals or objectives to employees, and (C) using such goals or objectives tomake performance distinctions among employees or groups of employees.

For purposes of this title, performance of an employee during any period in whichsuch employee is subject to standards of performance under paragraph (2) shall beconsidered to be unacceptable if the performance of such employee during such pe-riod fails to meet any retention standard.

(b) AWARDS.(1) FOR SUPERIOR ACCOMPLISHMENTS.In the case of a proposed award based

on the efforts of an employee or former employee of the Internal Revenue Serv-ice, any approval required under the provisions of section 4502(b) shall be con-sidered to have been granted if the Office of Personnel Management does notdisapprove the proposed award within 60 days after receiving the appropriatecertification described in such provisions.

(2) FOR EMPLOYEES WHO REPORT DIRECTLY TO THE COMMISSIONER.(A) IN GENERAL.In the case of an employee of the Internal Revenue

Service who reports directly to the Commissioner of Internal Revenue, acash award in an amount up to 50 percent of such employees annual rate

of basic pay may be made if the Commissioner finds such an award to bewarranted based on such employees performance.(B) N ATURE OF AN AWARD.A cash award under this paragraph shall

not be considered to be part of basic pay.(C) T AX ENFORCEMENT RESULTS.A cash award under this paragraph

may not be based solely on tax enforcement results.(D) ELIGIBLE EMPLOYEES.Whether or not an employee is an employee

who reports directly to the Commissioner of Internal Revenue shall, forpurposes of this paragraph, be determined under regulations which theCommissioner shall prescribe, except that in no event shall more than 8employees be eligible for a cash award under this paragraph in any cal-endar year.

(E) LIMITATION ON COMPENSATION.For purposes of applying section5307 to an employee in connection with any calendar year to which anaward made under this paragraph to such employee is attributable, sub-section (a)(1) of such section shall be applied by substituting to equal orexceed the annual rate of compensation for the Vice President for such cal-endar year for to exceed the annual rate of basic pay payable for level Iof the Executive Schedule, as of the end of such calendar year.

(F) APPROVAL REQUIRED.An award under this paragraph may not bemade unless(i) the Commissioner of Internal Revenue certifies to the Office of

Personnel Management that such award is warranted; and(ii) the Office approves, or does not disapprove, the proposed award

within 60 days after the date on which it is so certified.(3) BASED ON SAVINGS.

(A) IN GENERAL.The Commissioner of Internal Revenue may authorizethe payment of cash awards to employees based on documented financialsavings achieved by a group or organization which such employees com-prise, if such payments are made pursuant to a plan which


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(i) specifies minimum levels of service and quality to be maintainedwhile achieving such financial savings; and

(ii) is in conformance with criteria prescribed by the Office of Per-sonnel Management.

(B) FUNDING.A cash award under this paragraph may be paid from thefund or appropriation available to the activity primarily benefiting or the

various activities benefiting.(C) T AX ENFORCEMENT RESULTS.A cash award under this paragraph

may not be based solely on tax enforcement results.(c) OTHER PROVISIONS.

(1) NOTICE PROVISIONS.In applying sections 4303(b)(1)(A) and 7513(b)(1) toemployees of the Internal Revenue Service, 15 days shall be substituted for 30days.

(2) APPEALS.Notwithstanding the second sentence of section 5335(c), anemployee of the Internal Revenue Service shall not have a right to appeal thedenial of a periodic step increase under section 5335 to the Merit Systems Pro-tection Board.

9303. Staffing flexibilities

(a) ELIGIBILITY TO COMPETE FOR A PERMANENT APPOINTMENT IN THE COMPETI-TIVE SERVICE.(1) ELIGIBILITY OF QUALIFIED VETERANS.

(A) IN GENERAL.No veteran described in subparagraph (B) shall be de-nied the opportunity to compete for an announced vacant competitive serv-ice position within the Internal Revenue Service by reason of

(i) not having acquired competitive status; or(ii) not being an employee of that agency.

(B) DESCRIPTION.An individual shall, for purposes of a position forwhich such individual is applying, be considered a veteran described in thissubparagraph if such individual

(i) is either a preference eligible, or an individual (other than a pref-erence eligible) who has been separated from the armed forces underhonorable conditions after at least 3 years of active service; and

(ii) meets the minimum qualification requirements for the positionsought.

(2) ELIGIBILITY OF CERTAIN TEMPORARY EMPLOYEES.(A) IN GENERAL.No temporary employee described in subparagraph (B)

shall be denied the opportunity to compete for an announced vacant com-

petitive service position within the Internal Revenue Service by reason ofnot having acquired competitive status.(B) DESCRIPTION.An individual shall, for purposes of a position for

which such individual is applying, be considered a temporary employee de-scribed in this subparagraph if

(i) such individual is then currently serving as a temporary em-ployee in the Internal Revenue Service;

(ii) such individual has completed at least 2 years of current contin-uous service in the competitive service under 1 or more term appoint-ments, each of which was made under competitive procedures pre-scribed for permanent appointments;

(iii) such individuals performance under each term appointment re-ferred to in clause (ii) met all applicable retention standards; and

(iv) such individual meets the minimum qualification requirementsfor the position sought.

(b) RATING SYSTEMS.(1) IN GENERAL.Notwithstanding subchapter I of chapter 33, the Commis-

sioner of Internal Revenue may establish category rating systems for evaluating job applicants for positions in the competitive service, under which qualified

candidates are divided into 2 or more quality categories on the basis of relativedegrees of merit, rather than assigned individual numerical ratings. Each appli-cant who meets the minimum qualification requirements for the position to befilled shall be assigned to an appropriate category based on an evaluation of theapplicants knowledge, skills, and abilities relative to those needed for success-ful performance in the job to be filled.

(2) TREATMENT OF PREFERENCE ELIGIBLES.Within each quality category es-tablished under paragraph (1), preference eligibles shall be listed ahead of indi-

viduals who are not preference eligibles. For other than scientific and profes-sional positions at or higher than GS9 (or equivalent), preference eligibles whohave a compensable service-connected disability of 10 percent or more, and who


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meet the minimum qualification standards, shall be listed in the highest qualitycategory.

(3) SELECTION PROCESS.An appointing authority may select any applicantfrom the highest quality category or, if fewer than 3 candidates have been as-signed to the highest quality category, from a merged category consisting of thehighest and second highest quality categories. Notwithstanding the precedingsentence, the appointing authority may not pass over a preference eligible inthe same or a higher category from which selection is made, unless the require-ments of section 3317(b) or 3318(b), as applicable, are satisfied, except that inno event may certification of a preference eligible under this subsection be dis-continued by the Internal Revenue Service under section 3317(b) before the endof the 6-month period beginning on the date of such employees first certifi-cation.

(c) INVOLUNTARY REASSIGNMENTS AND REMOVALS OF CAREER APPOINTEES IN THESENIOR EXECUTIVE SERVICE.Neither section 3395(e)(1) nor section 3592(b)(1) shallapply with respect to the Internal Revenue Service.

(d) PROBATIONARY PERIODS.Notwithstanding any other provision of law or reg-ulation, the Commissioner of Internal Revenue may establish a period of probation

under section 3321 of up to 3 years for any position if, as determined by the Com-missioner, a shorter period would be insufficient for the incumbent to demonstratecomplete proficiency in such position.

(e) PROVISIONS THAT REMAIN APPLICABLE.No provision of this section exemptsthe Internal Revenue Service from

(1) any employment priorities established under direction of the President forthe placement of surplus or displaced employees; or

(2) its obligations under any court order or decree relating to the employ-ment practices of the Internal Revenue Service.

9304. Flexibilities relating to demonstration projects

(a) AUTHORITY TO CONDUCT.The Commissioner of Internal Revenue may, in ac-cordance with this section, conduct 1 or more demonstration projects to improve per-sonnel management; provide increased individual accountability; eliminate obstaclesto the removal of or imposing any disciplinary action with respect to poor perform-ers, subject to the requirements of due process; expedite appeals from adverse ac-tions or performance-based actions; and promote pay based on performance.

(b) GENERAL REQUIREMENTS.Except as provided in subsection (c), each dem-onstration project under this section shall comply with the provisions of section4703.

(c) SPECIAL RULES.For purposes of any demonstration project under this sec-tion

(1) AUTHORITY OF COMMISSIONER.The Commissioner of Internal Revenueshall exercise the authority provided to the Office of Personnel Managementunder section 4703.

(2) PROVISIONS NOT APPLICABLE.The following provisions of section 4703shall not apply:

(A) Paragraphs (3) through (6) of subsection (b).(B) Paragraphs (1), (2)(B)(ii), and (4) of subsection (c).(C) Subsections (d) through (g).

(d) NOTIFICATION REQUIRED TO BE GIVEN.(1) TO EMPLOYEES.The Commissioner of Internal Revenue shall notify em-

ployees likely to be affected by a project proposed under this section at least90 days in advance of the date such project is to take effect.

(2) TO CONGRESS AND OPM.The Commissioner of Internal Revenue shall,with respect to each demonstration project under this section, provide eachHouse of Congress and the Office of Personnel Management with a report, atleast 30 days in advance of the date such project is to take effect, setting forth

the final version of the plan for such project. Such report shall, with respect tothe project to which it relates, include the information specified in section4703(b)(1).

(e) LIMITATIONS.No demonstration project under this section may(1) provide for a waiver of any regulation prescribed under any provision of

law referred to in paragraph (2)(B)(i) or (3) of section 4703(c);(2) provide for a waiver of subchapter V of chapter 63 or subpart G of part

III (or any regulations prescribed under such subchapter or subpart);(3) provide for a waiver of any law or regulation relating to preference eligi-

bles as defined in section 2108 or subchapter II or III of chapter 73 (or any reg-ulations prescribed thereunder);


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(4) permit collective bargaining over pay or benefits, or require collective bar-gaining over any matter which would not be required under section 7106; or

(5) include a system for measuring performance that provides for only 1 levelof performance at or above the level of fully successful or better.

(f) PERMISSIBLE PROJECTS.Notwithstanding any other provision of law, a dem-onstration project under this section

(1) may establish alternative means of resolving any dispute within the juris-diction of the Equal Employment Opportunity Commission, the Merit SystemsProtection Board, the Federal Labor Relations Authority, or the Federal ServiceImpasses Panel; and

(2) may permit the Internal Revenue Service to adopt any alternative disputeresolution procedure that a private entity may lawfully adopt.

(g) CONSULTATION AND COORDINATION.The Commissioner of Internal Revenueshall consult with the Director of the Office of Personnel Management in the devel-opment and implementation of each demonstration project under this section andshall submit such reports to the Director as the Director may require. The Directoror the Commissioner of Internal Revenue may terminate a demonstration projectunder this section if either of them determines that the project creates a substantialhardship on, or is not in the best interests of, the public, the Federal Government,employees, or qualified applicants for employment with the Internal Revenue Serv-ice.

(h) TERMINATION.Each demonstration project under this section shall terminatebefore the end of the 5-year period beginning on the date on which the project takeseffect, except that any such project may continue beyond the end of such period, fornot to exceed 2 years, if the Commissioner of Internal Revenue, with the concur-rence of the Director, determines such extension is necessary to validate the resultsof the project. Not later than 6 months before the end of the 5-year period and anyextension under the preceding sentence, the Commissioner of Internal Revenueshall, with respect to the demonstration project involved, submit a legislative pro-posal to the Congress if the Commissioner determines that such project should bemade permanent, in whole or in part.

(b) CLERICAL AMENDMENT.The analysis for part III of title 5, United StatesCode, is amended by adding at the end the following:

Subpart IMiscellaneous

93. Personnel Flexibilities Relating to the Internal Revenue Service ...................................................... 9301.

(c) EFFECTIVE DATE.This section shall take effect on the date of enactment ofthis Act.

TITLE IIELECTRONIC FILING

SEC. 201. ELECTRONIC FILING OF TAX AND INFORMATION RETURNS.

(a) IN GENERAL.It is the policy of the Congress that paperless filing should bethe preferred and most convenient means of filing tax and information returns, andthat by the year 2007, no more than 20 percent of all such returns should be filedon paper.

(b) STRATEGIC PLAN.(1) IN GENERAL.Not later than 180 days after the date of the enactment of

this Act, the Secretary of the Treasury or the Secretarys delegate (hereafter inthis section referred to as the Secretary) shall establish a plan to eliminatebarriers, provide incentives, and use competitive market forces to increase elec-tronic filing gradually over the next 10 years while maintaining processingtimes for paper returns at 40 days. To the extent practicable, such plan shallprovide that all returns prepared electronically for taxable years beginning after

2001 shall be filed electronically.(2) ELECTRONIC COMMERCE ADVISORY GROUP.To ensure that the Secretaryreceives input from the private sector in the development and implementationof the plan required by paragraph (1), the Secretary shall convene an electroniccommerce advisory group to include representatives from the small businesscommunity and from the tax practitioner, preparer, and computerized tax proc-essor communities and other representatives from the electronic filing industry.

(c) PROMOTION OF ELECTRONIC FILING AND INCENTIVES.Section 6011 is amendedby redesignating subsection (f) as subsection (g) and by inserting after subsection(e) the following new subsection:

(f) PROMOTION OF ELECTRONIC FILING.


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(1) IN GENERAL.The Secretary is authorized to promote the benefits of andencourage the use of electronic tax administration programs, as they becomeavailable, through the use of mass communications and other means.

(2) INCENTIVES.The Secretary may implement procedures to provide for thepayment of appropriate incentives for electronically filed returns.

(d) ANNUAL REPORTS.Not later than June 30 of each calendar year after 1997,the Chairperson of the Internal Revenue Service Oversight Board, the Secretary,and the Chairperson of the electronic commerce advisory group established undersubsection (b)(2) shall report to the Committees on Ways and Means, Appropria-tions, and Government Reform and Oversight of the House of Representatives, theCommittees on Finance, Appropriations, and Government Affairs of the Senate, andthe Joint Committee on Taxation, on

(1) the progress of the Internal Revenue Service in meeting the goal of receiv-ing electronically 80 percent of tax and information returns by 2007;

(2) the status of the plan required by subsection (b); and(3) the legislative changes necessary to assist the Internal Revenue Service

in meeting such goal.

SEC. 202. DUE DATE FOR CERTAIN INFORMATION RETURNS FILED ELECTRONICALLY.

(a) IN GENERAL.Section 6071 (relating to time for filing returns and other docu-ments) is amended by redesignating subsection (b) as subsection (c) and by insertingafter subsection (a) the following new subsection:

(b) ELECTRONICALLY FILED INFORMATION RETURNS.Returns made under sub-parts B and C of part III of this subchapter which are filed electronically shall befiled on or before March 31 of the year following the calendar year to which suchreturns relate.

(b) EFFECTIVE DATE.The amendment made by this section shall apply to returnsrequired to be filed after December 31, 1999.

SEC. 203. PAPERLESS ELECTRONIC FILING.

(a) IN GENERAL.Section 6061 (relating to signing of returns and other docu-ments) is amended

(1) by striking Except as otherwise provided by and inserting the following:(a) GENERAL RULE.Except as otherwise provided by subsection (b) and, and

(2) by adding at the end the following new subsection:(b) ELECTRONIC SIGNATURES.

(1) IN GENERAL.The Secretary shall develop procedures for the acceptanceof signatures in digital or other electronic form. Until such time as such proce-dures are in place, the Secretary may waive the requirement of a signature for

all returns or classes of returns, or may provide for alternative methods of sub-scribing all returns, declarations, statements, or other documents required orpermitted to be made or written under internal revenue laws and regulations.

(2) TREATMENT OF ALTERNATIVE METHODS.Notwithstanding any other pro-vision of law, any return, declaration, statement or other document filed with-out signature under the authority of this subsection or verified, signed or sub-scribed under any method adopted under paragraph (1) shall be treated for allpurposes (both civil and criminal, including penalties for perjury) in the samemanner as though signed and subscribed. Any such return, declaration, state-ment or other document shall be presumed to have been actually submitted andsubscribed by the person on whose behalf it was submitted.

(3) PUBLISHED GUIDANCE.The Secretary shall publish guidance as appro-priate to define and implement any waiver of the signature requirements.

(b) ACKNOWLEDGMENT OF ELECTRONIC FILING.Section 7502(c) is amended toread as follows:

(c) REGISTERED AND CERTIFIED MAILING; ELECTRONIC FILING.(1) REGISTERED MAIL.For purposes of this section, if any return, claim,

statement, or other document, or payment, is sent by United States registeredmail

(A) such registration shall be prima facie evidence that the return, claim,statement, or other document was delivered to the agency, officer, or officeto which addressed, and

(B) the date of registration shall be deemed the postmark date.(2) CERTIFIED MAIL; ELECTRONIC FILING.The Secretary is authorized to pro-

vide by regulations the extent to which the provisions of paragraph (1) with re-spect to prima facie evidence of delivery and the postmark date shall apply tocertified mail and electronic filing..

(c) ESTABLISHMENT OF PROCEDURES FOR OTHER INFORMATION.In the case of tax-able periods beginning after December 31, 1998, the Secretary of the Treasury orthe Secretarys delegate shall, to the extent practicable, establish procedures to ac-


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cept, in electronic form, any other information, statements, elections, or schedules,from taxpayers filing returns electronically, so that such taxpayers will not be re-quired to file any paper.

(d) PROCEDURES FOR COMMUNICATIONS BETWEEN IRS AND PREPARER OF ELEC-TRONICALLY-FILED RETURNS.The Secretary shall establish procedures for tax-payers to authorize, on electronically filed returns, the preparer of such returns tocommunicate with the Internal Revenue Service on matters included on such re-turns.

(e) EFFECTIVE DATE.The amendments made by this section shall take effect onthe date of the enactment of this Act.

SEC. 204. RETURN-FREE TAX SYSTEM.

(a) IN GENERAL.The Secretary of the Treasury or the Secretarys delegate shalldevelop procedures for the implementation of a return-free tax system under whichappropriate individuals would be permitted to comply with the Internal RevenueCode of 1986 without making the return required under section 6012 of such Codefor taxable years beginning after 2007.

(b) REPORT.Not later than June 30 of each calendar year after 1999, such Sec-retary shall report to the Committee on Ways and Means of the House of Represent-

atives, the Committee on Finance of the Senate, and the Joint Committee on Tax-ation on(1) what additional resources the Internal Revenue Service would need to im-

plement such a system,(2) the changes to the Internal Revenue Code of 1986 that could enhance the

use of such a system,(3) the procedures developed pursuant to subsection (a), and(4) the number and classes of taxpayers that would be permitted to use the

procedures developed pursuant to subsection (a).

SEC. 205. ACCESS TO ACCOUNT INFORMATION.

Not later than December 31, 2006, the Secretary of the Treasury or the Sec-retarys delegate shall develop procedures under which a taxpayer filing returnselectronically would be able to review the taxpayers account electronically, but onlyif all necessary safeguards to ensure the privacy of such account information are inplace.

TITLE IIITAXPAYER PROTECTION ANDRIGHTS

SEC. 300. SHORT TITLE.

This title may be cited as the Taxpayer Bill of Rights 3.

Subtitle ABurden of Proof

SEC. 301. BURDEN OF PROOF.

(a) IN GENERAL.Chapter 76 (relating to judicial proceedings) is amended by add-ing at the end the following new subchapter:

Subchapter EBurden of Proof

Sec. 7491. Burden of proof.

SEC. 7491. BURDEN OF PROOF.

(a) GENERAL RULE.The Secretary shall have the burden of proof in any courtproceeding with respect to any factual issue relevant to ascertaining the income tax

liability of a taxpayer.(b) LIMITATIONS.Subsection (a) shall only apply with respect to an issue if(1) the taxpayer asserts a reasonable dispute with respect to such issue,(2) the taxpayer has fully cooperated with the Secretary with respect to such

issue, including providing, within a reasonable period of time, access to and in-spection of all witnesses, information, and documents within the control of thetaxpayer, as reasonably requested by the Secretary, and

(3) in the case of a partnership, corporation, or trust, the taxpayer is de-scribed in section 7430(c)(4)(A)(ii).

(c) SUBSTANTIATION.Nothing in this section shall be construed to override anyrequirement of this title to substantiate any item.


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(b) CONFORMINGAMENDMENTS.(1) Section 6201 is amended by striking subsection (d) and redesignating sub-

section (e) as subsection (d).(2) The table of subchapters for chapter 76 is amended by adding at the end

the following new item:Subchapter E. Burden of proof.

(c) EFFECTIVE DATE.The amendments made by this section shall apply to courtproceedings arising in connection with examinations commencing after the date ofthe enactment of this Act.

Subtitle BProceedings by Taxpayers

SEC. 311. EXPANSION OF AUTHORITY TO AWARD COSTS AND CERTAIN FEES.

(a) AWARD OF HIGHER ATTORNEYS FEES B ASED ON COMPLEXITY OF ISSUES.Clause (iii) of section 7430(c)(1)(B) (relating to the award of costs and certain fees)is amended by inserting the difficulty of the issues presented in the case, or the

local availability of tax expertise, before justifies a higher rate.(b) AWARD OF ADMINISTRATIVE COSTS INCURRED AFTER 30-DAY LETTER.Para-graph (2) of section 7430(c) is amended by striking the last sentence and insertingthe following:

Such term shall only include costs incurred on or after whichever of the follow-ing is the earliest: (i) the date of the receipt by the taxpayer of the notice ofthe decision of the Internal Revenue Service Office of Appeals, (ii) the date ofthe notice of deficiency, or (iii) the date on which the 1st letter of proposed defi-ciency which allows the taxpayer an opportunity for administrative review inthe Internal Revenue Service Office of Appeals is sent..

(c) AWARD OF FEES FOR CERTAIN ADDITIONAL SERVICES.Paragraph (3) of section7430(c) is amended to read as follows:

(3) ATTORNEYS FEES.(A) IN GENERAL.For purposes of paragraphs (1) and (2), fees for the

services of an individual (whether or not an attorney) who is authorized topractice before the Tax Court or before the Internal Revenue Service shallbe treated as fees for the services of an attorney.

(B) PRO BONO SERVICES.In any case in which the court could haveawarded attorneys fees under subsection (a) but for the fact that an indi-

vidual is representing the prevailing party for no fee or for a fee which (tak-ing into account all the facts and circumstances) is no more than a nominalfee, the court may also award a judgment or settlement for such amountsas the court determines to be appropriate (based on hours worked and costsexpended) for services of such individual but only if such award is paid tosuch individual or such individuals employer.

(d) DETERMINATION OF WHETHER POSITION OF UNITED STATES IS SUBSTANTIALLYJUSTIFIED.Subparagraph (B) of section 7430(c)(4) is amended by redesignatingclause (iii) as clause (iv) and by inserting after clause (ii) the following new clause:

(iii) EFFECT OF LOSING ON SUBSTANTIALLY SIMILAR ISSUES.In deter-mining for purposes of clause (i) whether the position of the UnitedStates was substantially justified, the court shall take into accountwhether the United States has lost in courts of appeal for other circuitson substantially similar issues.

(e) EFFECTIVE DATE.The amendments made by this section shall apply to costsincurred (and, in the case of the amendment made by subsection (c), services per-formed) more than 180 days after the date of the enactment of this Act.

SEC. 312. CIVIL DAMAGES FOR NEGLIGENCE IN COLLECTION ACTIONS.

(a) IN GENERAL.Section 7433 (relating to civil damages for certain unauthorizedcollection actions) is amended(1) in subsection (a), by inserting , or by reason of negligence, after reck-

lessly or intentionally, and(2) in subsection (b)

(A) in the matter preceding paragraph (1), by inserting ($100,000, in thecase of negligence) after $1,000,000, and

(B) in paragraph (1), by inserting or negligent after reckless or inten-tional.

(b) REQUIREMENT THAT ADMINISTRATIVE REMEDIES BE EXHAUSTED.Paragraph(1) of section 7433(d) is amended to read as follows:


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(1) REQUIREMENT THAT ADMINISTRATIVE REMEDIES BE EXHAUSTED.A judg-ment for damages shall not be awarded under subsection (b) unless the courtdetermines that the plaintiff has exhausted the administrative remedies avail-able to such plaintiff within the Internal Revenue Service.

(c) EFFECTIVE DATE.The amendments made by this section shall apply to ac-tions of officers or employees of the Internal Revenue Service after the date of theenactment of this Act.

SEC. 313. INCREASE IN SIZE OF CASES PERMITTED ON SMALL CASE CALENDAR.

(a) IN GENERAL.Subsection (a) of section 7463 (relating to disputes involving$10,000 or less) is amended by striking $10,000 each place it appears and insert-ing $25,000.

(b) CONFORMINGAMENDMENTS.(1) The section heading for section 7463 is amended by striking $10,000 and

inserting $25,000.(2) The item relating to section 7463 in the table of sections for part II of sub-

chapter C of chapter 76 is amended by striking $10,000 and inserting$25,000.

(c) EFFECTIVE DATE.The amendments made by this section shall apply to pro-

ceedings commencing after the date of the enactment of this Act.

Subtitle CRelief for Innocent Spouses and forTaxpayers Unable To Manage Their FinancialAffairs Due to Disabilities

SEC. 321. SPOUSE RELIEVED IN WHOLE OR IN PART OF LIABILITY IN CERTAIN CASES.

(a) IN GENERAL.Subpart B of part II of subchapter A of chapter 61 is amendedby inserting after section 6014 the following new section:

SEC. 6015. INNOCENT SPOUSE RELIEF; PETITION TO TAX COURT.

(a) SPOUSE RELIEVED OF LIABILITY IN CERTAIN CASES.(1) IN GENERAL.Under procedures prescribed by the Secretary, if

(A) a joint return has been made under section 6013 for a taxable year,(B) on such return there is an understatement of tax attributable to er-

roneous items of 1 spouse,(C) the other spouse establishes that in signing the return he or she did

not know, and had no reason to know, that there was such understatement,(D) taking into account all the facts and circumstances, it is inequitable

to hold the other spouse liable for the deficiency in tax for such taxable yearattributable to such understatement, and

(E) the other spouse claims (in such form as the Secretary may pre-scribe) the benefits of this subsection not later than the date which is 2years after the date of the assessment of such deficiency,

then the other spouse shall be relieved of liability for tax (including interest,penalties, and other amounts) for such taxable year to the extent such liabilityis attributable to such understatement.

(2) APPORTIONMENT OF RELIEF.If a spouse who, but for paragraph (1)(C),would be relieved of liability under paragraph (1), establishes that in signingthe return such spouse did not know, and had no reason to know, the extentof such understatement, then such spouse shall be relieved of liability for tax(including interest, penalties, and other amounts) for such taxable year to theextent that such liability is attributable to the portion of such understatementof which such spouse did not know and had no reason to know.

(3) UNDERSTATEMENT.For purposes of this subsection, the term under-

statement has the meaning given to such term by section 6662(d)(2)(A).(4) SPECIAL RULE FOR COMMUNITY PROPERTY INCOME.For purposes of thissubsection, the determination of the spouse to whom items of gross income(other than gross income from property) are attributable shall be made withoutregard to community property laws.

(b) PETITION FOR REVIEW BY TAX COURT.In the case of an individual who hasfiled a claim under subsection (a) within the period specified in subsection(a)(1)(E)

(1) IN GENERAL.Such individual may petition the Tax Court (and the TaxCourt shall have jurisdiction) to determine such claim if such petition is filedduring the 90-day period beginning on the earlier of


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(A) the date which is 6 months after the date such claim is filed withthe Secretary, or

(B) the date on which the Secretary mails by certified or registered maila notice to such individual denying such claim.

Such 90-day period shall be determined by not counting Saturday, Sunday, ora legal holiday in the District of Columbia as the last day of such period.

(2) RESTRICTIONS APPLICABLE TO COLLECTION OF ASSESSMENT.(A) IN GENERAL.Except as otherwise provided in section 6851 or 6861,

no levy or proceeding in court for collection of any assessment to which suchclaim relates shall be made, begun, or prosecuted, until the expiration ofthe 90-day period described in paragraph (1), nor, if a petition has beenfiled with the Tax Court, until the decision of the Tax Court has becomefinal. Rules similar to the rules of section 7485 shall apply with respect tothe collection of such assessment.

(B) AUTHORITY TO ENJOIN COLLECTION ACTIONS.Notwithstanding theprovisions of section 7421(a), the beginning of such proceeding or levy dur-ing the time the prohibition under subparagraph (A) is in force may be en-

joined by a proceeding in the proper court, including the Tax Court. The

Tax Court shall have no jurisdiction under this paragraph to enjoin any ac-tion or proceeding unless a timely petition for a determination of such claimhas been filed and then only in respect of the amount of the assessmentto which such claim relates.

(C) JEOPARDY COLLECTION.If the Secretary makes a finding that thecollection of the tax is in jeopardy, nothing in this subsection shall preventthe immediate collection of such tax.

(c) SUSPENSION OF RUNNING OF PERIOD OF LIMITATIONS.The running of the pe-riod of limitations in section 6502 on the collection of the assessment to which thepetition under subsection (b) relates shall be suspended for the period during whichthe Secretary is prohibited by subsection (b) from collecting by levy or a proceedingin court and for 60 days thereafter.

(d) APPLICABLE RULES.(1) ALLOWANCE OF APPLICATION.Except as provided in paragraph (2), not-

withstanding any other law or rule of law (other than section 6512(b), 7121, or7122), credit or refund shall be allowed or made to the extent attributable tothe application of this section.

(2) RES JUDICATA.In the case of any claim under subsection (a), the deter-mination of the Tax Court in any prior proceeding for the same taxable periods

in which the decision has become final, shall be conclusive except with respectto the qualification of the spouse for relief which was not an issue in such pro-ceeding. The preceding sentence shall not apply if the Tax Court determinesthat the spouse participated meaningfully in such prior proceeding.

(3) LIMITATION ON TAX COURT JURISDICTION.If a suit for refund is begunby either spouse pursuant to section 6532, the Tax Court shall lose jurisdictionof the spouses action under this section to whatever extent jurisdiction is ac-quired by the district court or the United States Court of Federal Claims overthe taxable years that are the subject of the suit for refund.

(b) SEPARATE FORM FORAPPLYING FOR SPOUSAL RELIEF.Not later than 180 daysafter the date of the enactment of this Act, the Secretary of the Treasury shall de-

velop a separate form with instructions for use by taxpayers in applying for reliefunder section 6015(a) of the Internal Revenue Code of 1986, as added by this sec-tion.

(c) CONFORMINGAMENDMENTS.(1) Section 6013 is amended by striking subsection (e).(2) Subparagraph (A) of section 6230(c)(5) is amended by striking section

6013(e) and inserting section 6015.(d) CLERICAL AMENDMENT.The table of sections for subpart B of part II of sub-

chapter A of chapter 61 is amended by inserting after the item relating to section6014 the following new item:

Sec. 6015. Innocent spouse relief; petition to Tax Court.

(e) EFFECTIVE DATE.The amendments made by this section shall apply to under-statements for taxable years beginning after the date of the enactment of this Act.

SEC. 322. SUSPENSION OF STATUTE OF LIMITATIONS ON FILING REFUND CLAIMS DURING PE-RIODS OF DISABILITY.

(a) IN GENERAL.Section 6511 (relating to limitations on credit or refund) isamended by redesignating subsection (h) as subsection (i) and by inserting aftersubsection (g) the following new subsection:


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(h) RUNNING OF PERIODS OF LIMITATION SUSPENDED WHILE TAXPAYER IS UNABLETO MANAGE FINANCIALAFFAIRS DUE TO DISABILITY.

(1) IN GENERAL.In the case of an individual, the running of the periodsspecified in subsections (a), (b), and (c) shall be suspended during any periodof such individuals life that such individual is financially disabled.

(2) FINANCIALLY DISABLED.(A) IN GENERAL.For purposes of paragraph (1), an individual is finan-

cially disabled if such individual is unable to manage his financial affairsby reason of his medically determinable physical or mental impairmentwhich can be expected to result in death or which has lasted or can be ex-pected to last for a continuous period of not less than 12 months. An indi-

vidual shall not be considered to have such an impairment unless proof ofthe existence thereof is furnished in such form and manner as the Sec-retary may require.

(B) E XCEPTION WHERE INDIVIDUAL HAS GUARDIAN, ETC.An individualshall not be treated as financially disabled during any period that such in-dividuals spouse or any other person is authorized to act on behalf of suchindividual in financial matters.

(b) EFFECTIVE DATE.The amendment made by subsection (a) shall apply to peri-

ods of disability before, on, or after the date of the enactment of this Act but shallnot apply to any claim for credit or refund which (without regard to such amend-ment) is barred by the operation of any law or rule of law (including res judicata)as of January 1, 1998.

Subtitle DProvisions Relating to Interest

SEC. 331. ELIMINATION OF INTEREST RATE DIFFERENTIAL ON OVERLAPPING PERIODS OF IN-TEREST ON INCOME TAX OVERPAYMENTS AND UNDERPAYMENTS.

(a) IN GENERAL.Section 6621 (relating to determination of rate of interest) isamended by adding at the end the following new subsection:

(d) ELIMINATION OF INTEREST ON OVERLAPPING PERIODS OF INCOME TAX OVER-PAYMENTS AND UNDERPAYMENTS.To the extent that, for any period, interest ispayable under subchapter A and allowable under subchapter B on equivalent under-payments and overpayments by the same taxpayer of tax imposed by chapters 1 and2, the net rate of interest under this section on such amounts shall be zero for suchperiod.

(b) CONFORMINGAMENDMENT.Subsection (f) of section 6601 (relating to satisfac-tion by credits) is amended by adding at the end the following new sentence: Thepreceding sentence shall not apply to the extent that section 6621(d) applies.

(c) EFFECTIVE DATE.The amendments made by this section shall apply to inter-est for calendar quarters beginning after the date of the enactment of this Act.

SEC. 332. INCREASE IN OVERPAYMENT RATE PAYABLE TO TAXPAYERS OTHER THAN COR-PORATIONS.

(a) IN GENERAL.Subparagraph (B) of section 6621(a)(1) (defining overpaymentrate) is amended to read as follows:

(B) 3 percentage points (2 percentage points in the case of a corpora-tion).

(b) EFFECTIVE DATE.The amendment made by this section shall apply to inter-est for calendar quarters beginning after the date of the enactment of this Act.

Subtitle EProtections for Taxpayers Subject toAudit or Collection Activities

SEC. 341. PRIVILEGE OF CONFIDENTIALITY EXTENDED TO TAXPAYERS DEALINGS WITH NON-ATTORNEYS AUTHORIZED TO PRACTICE BEFORE INTERNAL REVENUE SERVICE.

Section 7602 (relating to examination of books and witnesses) is amended by add-ing at the end the following new subsection:

(d) PRIVILEGE OF CONFIDENTIALITY E XTENDED TO TAXPAYERS DEALINGS WITHNON-ATTORNEYS AUTHORIZED TO PRACTICE BEFORE INTERNAL REVENUE SERVICE.

(1) IN GENERAL.In any noncriminal proceeding before the Internal RevenueService, the taxpayer shall be entitled to the same common law protections ofconfidentiality with respect to tax advice furnished by any qualified individual(in a manner consistent with State law for such individuals profession) as thetaxpayer would have if such individual were an attorney.


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(2) QUALIFIED INDIVIDUAL.For purposes of paragraph (1), the term quali-fied individual means any individual (other than an attorney) who is authorizedto practice before the Internal Revenue Service.

SEC. 342. EXPANSION OF AUTHORITY TO ISSUE TAXPAYER ASSISTANCE ORDERS.

Section 7811(a) (relating to taxpayer assistance orders) is amended(1) by striking Upon application and inserting the following:(1) IN GENERAL.Upon application,(2) by moving the text 2 ems to the right, and(3) by adding at the end the following new paragraphs:(2) ISSUANCE OF TAXPAYER ASSISTANCE ORDERS.For purposes of determining

whether to issue a taxpayer assistance order, the Taxpayer Advocate shall con-sider the following factors, among others:

(A) Whether there is an immediate threat of adverse action.(B) Whether there has been an unreasonable delay in resolving taxpayer

account problems.(C) Whether the taxpayer will have to pay significant costs (including

fees for professional representation) if relief is not granted.(D) Whether the taxpayer will suffer irreparable injury, or a long-term

adverse impact, if relief is not granted.(3) STANDARD WHERE ADMINISTRATIVE GUIDANCE NOT FOLLOWED.In cases

where any Internal Revenue Service employee is not following applicable pub-lished administrative guidance (including the Internal Revenue Manual), theTaxpayer Advocate shall construe the factors taken into account in determiningwhether to issue a taxpayer assistance order in the manner most favorable tothe taxpayer.

SEC. 343. LIMITATION ON FINANCIAL STATUS AUDIT TECHNIQUES.

Section 7602 is amended by adding at the end the following new subsection:(e) LIMITATION ON EXAMINATION ON UNREPORTED INCOME.The Secretary shall

not use financial status or economic reality examination techniques to determine theexistence of unreported income of any taxpayer unless the Secretary has a reason-able indication that there is a likelihood of such unreported income.

SEC. 344. LIMITATION ON AUTHORITY TO REQUIRE PRODUCTION OF COMPUTER SOURCECODE.

(a) IN GENERAL.Section 7602 is amended by adding at the end the following newsubsection:

(f) LIMITATION ON AUTHORITY TO REQUIRE PRODUCTION OF COMPUTER SOURCECODE.

(1) IN GENERAL.No summons may be issued under this title, and the Sec-retary may not begin any action under section 7604 to enforce any summons,to produce or examine any tax-related computer source code.

(2) E XCEPTION WHERE INFORMATION NOT OTHERWISE AVAILABLE TO VERIFYCORRECTNESS OF ITEM ON RETURN.Paragraph (1) shall not apply to any por-tion of a tax-related computer source code if

(A) the Secretary is unable to otherwise reasonably ascertain the correct-ness of any item on a return from

(i) the taxpayers books, papers, records, or other data, or(ii) the computer software program and the associated data which,

when executed, produces the output to prepare the return for the pe-riod involved, and

(B) the Secretary identifies with reasonable specificity such portion as tobe used to verify the correctness of such item.

The Secretary shall be treated as meeting the requirements of subparagraphs(A) and (B) after the 90th day after the Secretary makes a formal request tothe taxpayer and the owner or developer of the computer software program for

the material described in subparagraph (A)(ii) if such material is not providedbefore the close of such 90th day.(3) OTHER EXCEPTIONS.Paragraph (1) shall not apply to

(A) any inquiry into any offense connected with the administration or en-forcement of the internal revenue laws, and

(B) any tax-related computer source code developed by (or primarily forthe benefit of) the taxpayer or a related person (within the meaning of sec-tion 267 or 707(b)) for internal use by the taxpayer or such person and notfor commercial distribution.

(4) TAX-RELATED COMPUTER SOURCE CODE.For purposes of this subsection,the term tax-related computer source code means


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(A) the computer source code for any computer software program for ac-counting, tax return preparation or co

House Report 105-364 Part 1

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